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2019 (11) TMI 1300 - AT - Income TaxEstimation of gross profit - HELD THAT:- A.O. did not verify the fact of cash discounts, which as per the assessee was one of the reason for variance of profit at Indore and Ujjain respectively. Further, the A.O. also failed to make independent enquiry from the market at Indore and Ujjain. It is settled principle of law that the estimation of profit should be made after considering the factors that influenced the profit. In a given market condition, if competition is high, the natural consequence would be lower profit margins and where there is no such competition, naturally the traders would fetch desired margins. This is the reason why it is expected from the A.O. that he should consider the factor that might influence the margins before making a fair estimation of the profit. A.O. did not make necessary enquiry, which would have enabled him to make a fair estimation of profit. Hence, action of the A.O. cannot be sustained. A.O. is therefore directed to delete the addition. Disallowance of excess commission - HELD THAT:- Admittedly, payment of commission is not treated as a bogus. The A.O. has not brought any adverse material suggesting that the commission was not paid or payment so made was received back by the assessee. It is also not the case that the payments have been made to the related parties. The decision in respect of quantum of commission to be paid would certainly be an issue to be decided by the business men. There is no law regulating the payment of commission or restricting the payment of commission by trader to its dealers. Merely because manufacturing company is not making payment of commission to the assessee cannot be the sole ground for disallowing the claim of expenditure related to payment of commission. At same time, the business men, to have a dominant position in market, makes such kind of commission or discounts, which is not prohibited by any law. It is the businessmen who can decide that what percentage of commission is required to be paid considering the commercial expediency. In the absence of material, merely a statement is made that assessee made excessive commission to reduce its tax liability which is not sufficient to reject claim of the assessee - Decided in favour of assessee.
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